CDL Hospitality Trusts - RHB Invest 2016-03-16: Many Compelling Reasons To Upgrade

CDL Hospitality Trusts - RHB Invest 2016-03-16: Many Compelling Reasons To Upgrade CDL HOSPITALITY TRUSTS CDLHT J85.SI 

CDL Hospitality Trusts - Many Compelling Reasons To Upgrade 

  • We have compelling reasons to believe that CDL Hospitality Trusts (CDLHT) may outperform the market. 
  • The MICE industry is set to see a busy year, as some events like the Singapore Airshow takes place biennially. 
  • In addition, the recent tie-up between Alitrip and STB would boost Chinese tourist arrivals for Singapore. 
  • Last, we think that the outlook of the global tourism sector may improve if there is a reduction in air fares, triggered by the low oil price environment. 
  • We upgrade CDLHT to BUY with a DDM-derived TP of SGD1.48 (15% upside). 

To benefit from a busy event calendar this year. 

  • We are optimistic on the outlook for the overall hospitality sector as Singapore is hosting more events compared to last year. 
  • During our visit to the Singapore Airshow last month, we observed that approximately half of the crowd during the weekend comprised of foreigners. With this, we expect revenue per available room (RevPAR) growth to strengthen in the coming quarter, as the airshow is a biennial event. 

Tourism gets a boost from STB’s tie-up with China’s largest online travel service platform. 

  • We believe the strategic tie-up between Alitrip (a subsidiary of Alibaba Group) and the Singapore Tourism Board (STB) could provide a major boost for the tourism sector. 
  • This initiative – Alitrip’s maiden overseas partnership – allows local airlines, hotels and businesses to set up outlets on its platform. This, we believe, could provide travellers from China with convenient access to book packages, facilities and services in Singapore – which would boost tourism revenue for the country. 

Low oil price environment could lower air fares. 

  • CDLHT is poised to benefit from the low oil price environment, as we are of view that global air fares may decline as a result. 
  • As it is the most geographically-diversified hospitality REIT under our coverage, we think that it will benefit the most should the reduction in air fares boost the global tourism sector. 

Compelling valuations lead us to upgrade to BUY, TP offers a potential upside of over 15%. 

  • We are of view that CDLHT has been oversold, given that it is trading at a wide discount of 19.5% to its FY15 book value. 
  • In addition, we think the above mentioned factors would provide catalysts for its share price to outperform the market. 
  • We upgrade the counter to BUY, with a TP of SGD1.48 implying a FY15 P/BV ratio of 0.93x. 
  • Key downside risk to our view is the higher number of tourist arrivals not translating into higher tourism receipts in accommodation. 

Ivan Looi RHB Invest | 2016-03-16
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